The four plaintiffs allege that the CPPIB has breached its duties by mismanaging climate-related financial risks. Their case argues that the pension manager is dramatically underestimating its exposure to the financial risks of a warming planet. In its 2025 annual report, the investment board estimates only a 4% loss in a “hot-house world” scenario where temperatures rise by 3°C. But scientists warn that such a trajectory would bring devastating impacts to global economies, financial systems and human livelihoods. No portfolio could withstand the impacts of that much warming. Yet CPPIB has continued to commit billions to the cause of the crisis: fossil fuel expansion.

“Our case is alleging that CPP Investments is mismanaging our pension fund by failing to adequately respond to climate change,” explains Rav Singh, one of the young applicants. “CPP is supposed to be one of our most reliable sources of retirement income. We should all be concerned that our CPP benefits may not be as dependable as we’d like to think.”

This case is among the first of its kind, where beneficiaries are asking the courts to hold their pension manager accountable for mismanaging climate risks. The applicants are not seeking money; they are asking the court to direct CPPIB to identify, assess and manage climate risks appropriately and transparently, in line with its mandate to invest without “undue risk of loss” and act in the best interests of contributors and beneficiaries.

CPPIB has acknowledged that climate change is “an existential threat . . . the single biggest investment risk that we face.” In March 2025, CPPIB published an interview with climate scientist Johan Rockström, who warned, “We cannot continue allowing ourselves to destroy the stability of the climate system, and quite frankly the stability of the planet, by subsidizing unsustainable investments.”

Despite recognizing the threat, CPPIB’s climate approach tells another story. Its risk modelling assumes CPP resilience at more than 3°C of warming. According to the Intergovernmental Panel on Climate Change, 3°C of global warming could expose 3.25 billion people to lethal heat and humidity, decimate fresh water supplies and global food production, cause the extinction of plants and animals, lead to the collapse of marine ecosystems, and trigger catastrophic sea-level rise. It is imprudent to suggest that CPPIB can fulfill its mandate – or that Canadians can enjoy retirement security – under such catastrophic climate outcomes.

Meanwhile, last year CPPIB abandoned its net-zero commitment, reversing its 2022 statement that stewarding the portfolio to net-zero emissions was in “the best interests of the contributors and beneficiaries of the Canada Pension Plan.” The net-zero reversal was approved by a board on which nearly one-third of CPPIB directors held roles with fossil fuel companies, raising questions about potential conflicts of interest.

In the months following that reversal, CPPIB doubled down on fossil fuels: investing $4.1 billion in Sempra Infrastructure, which builds new gas pipelines and export terminals, and $1.4 billion in AlphaGen, owner of 23 fossil fuel power plants. These are not “transition” investments – they are bets on the continued expansion of fossil fuels.

When journalists asked CPPIB to explain how this climate litigation could be “an action against 22 million Canadians’ retirement security,” as articulated in its approach to climate risk, the fund didn’t respond. As applicant Aliya Hirji said, “I don’t want to be suing my pension. But I want to retire on a stable pension into a livable future. If taking CPP Investments to court is what’s needed to achieve that, so be it.”

The reality is that many of CPPIB’s peers are already showing what responsible, climate-aligned investing looks like. ABP, Europe’s largest pension fund, affirms that “Building good pensions together in a liveable world [is] our mission . . . A liveable world demands a sustainable economy.” La Caisse, which manages the Quebec Pension Plan, has exited coal and oil entirely and tied staff compensation to climate goals – actions it says have improved the fund’s financial position. And Ontario’s University Pension Plan directly links its fiduciary duty to climate responsibility, stating that “Climate change stands out among the significant material risks to our portfolio, demanding immediate action in line with our fiduciary responsibility.”

CPPIB is one of the world’s largest and most sophisticated investors. It has the tools, talent and resources to manage climate risk responsibly – but it must choose to actually do so. Protecting the CPP means protecting the climate that Canadians will retire into. Climate stability and pension sustainability are not opposing goals. They are inseparable.

Cheryl Randall is the campaign specialist and Patrick DeRochie is the senior manager for Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the fossil fuel investments and climate policies of Canadian pension funds, and mobilizes beneficiaries to engage their pension managers on the climate crisis.

The post The Canada Pension Plan is undermining its own sustainability by investing in climate failure appeared first on Corporate Knights.

This is no longer the case.

Canadian pension funds have risked billions of dollars in workers’ retirement savings on gas companies that make the climate crisis worse and that face terminal decline as the energy transition accelerates. While gas companies insist they can decarbonize their operations and protect their business model by repurposing their infrastructure to transport and use hydrogen, these flimsy claims don’t stand up to due diligence.

As climate change provokes stronger emission-reduction policies and as cheaper zero-carbon technologies proliferate, gas companies are soon entering an era of shrinking demand and lost customers. This could result in billions of dollars in stranded gas assets and significant losses for Canadian pension funds.

New research published by Shift reveals the extent of these climate-related financial risks. Nine of Canada’s public pension managers are co-owners of 22 private gas distribution, transmission, power generation, processing and storage companies, collectively operating nearly 350,000 kilometres in pipelines globally.

As long-term investors with a fiduciary duty to invest in members’ best interests, pension funds are obligated to manage climate-related risks. Owning thousands of kilometres of gas pipelines has become incompatible with this duty.

– Patrick DeRochie, Senior Manager, Shift Action for Pension Wealth and Planet Health

Demand for low-cost electrification technologies, like heat pumps, renewable energy and battery storage, is skyrocketing. Gas companies face the prospect of lower demand for gas transmission and distribution – leading toward a “gas utility death spiral.” Gas utility customers are increasingly choosing to leave the gas system (for example by swapping their gas furnace for a heat pump). As more customers ditch gas, utilities must spread their fixed infrastructure costs over a shrinking pool of customers, driving up prices for those remaining. That in turn pushes even more gas customers to leave.

There’s no safety for pensions in betting that the energy transition will occur slowly. The longer these pipelines operate – perpetuating the production, transportation and combustion of methane – the worse the climate crisis gets. This, in turn, multiplies risks for pension portfolios across the wider financial system.

Banking on hydrogen puts pension managers in a bind

Gas companies downplay their exposure to this growing transition risk by touting plans to repurpose their infrastructure to transport and use hydrogen. Hydrogen may well play a niche role in the energy transition in hard-to-decarbonize industrial processes. But expert analysis has poured cold water on the potential for hydrogen’s use in existing gas infrastructure, concluding that hydrogen is “expensive to produce, difficult to transport, and a second- or third-best clean energy solution in almost all proposed markets.”

A peer-reviewed 2024 study found that “hydrogen is not an effective decarbonization tool for use in homes and buildings” and that “attempts to repurpose gas systems for use with hydrogen face major safety, technical, political, regulatory and economic hurdles.” A meta-review of 54 studies on hydrogen for home heating concluded that none supported heating with hydrogen at scale.

This should set off alarm bells for Canadian pension managers.

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The Ontario Teachers’ Pension Plan recently bought large stakes in gas distribution and transmission companies in the United Kingdom and Italy. Similarly, the British Columbia Investment Management Corporation co-owns gas pipeline networks in Brazil, Czechia, Germany and the United Kingdom. Both pension managers claimed that their gas investments were about “net-zero transition” and “decarbonization” but have neglected to disclose credible plans for how these high-carbon assets could profitably transition.

The Canadian pension sector’s significant exposure to gas companies puts these investment managers – and the pension plan members they invest on behalf of – in a bind.

As long-term investors with a fiduciary duty to invest in members’ best interests, pension funds are obligated to manage climate-related risks. Owning thousands of kilometres of gas pipelines has become incompatible with this duty.

In the long run, there are no winners when investors bet against the energy transition.

Pension managers should act quickly to ensure the climate integrity of their risky gas investments – helping to protect both financial returns and a healthy planet on which to enjoy them. This means increasing transparency and disclosure of gas company holdings and how they are aligned with pension fund net-zero commitments, halting investments in unjustifiable gas and hydrogen infrastructure, and acknowledging the need for gas companies to transform their business model and plan for the decommissioning of gas infrastructure over time.

It’s time for pension funds to stop pretending that gas is a “transition fuel” or that hydrogen will rescue their soon-to-be-stranded gas assets. If gas companies refuse to align their business with credible decarbonization plans, they don’t belong in pension portfolios.

Patrick DeRochie is the senior manager for Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the fossil fuel investments and climate policies of Canadian pension funds and mobilizes beneficiaries to engage their pension managers on the climate crisis.

The post Hydrogen won’t rescue pension funds from bad bets on gas appeared first on Corporate Knights.

But the financing needs and expansion plans of oil and gas companies are incompatible with CPPIB’s mandate to ensure Canadians’ retirement security by investing “with a view to achieving a maximum rate of return without undue risk of loss.”

It should be obvious that achieving this mandate is dependent on stabilizing global temperatures at relatively safe levels. Canadians require a livable planet on which to retire, and climate scientists and energy modellers are clear that limiting global temperature increase to 1.5℃ and avoiding catastrophic impacts to our ecosystems, economy and financial system requires fossil fuels to be rapidly phased down.

This creates a difficult test for our national pension manager. CPPIB needs to tamp down the Alberta government’s efforts to upend Canada’s retirement fund and reassure Albertans that it provides value for money by delivering superior pension returns. At the same time, CPPIB must acknowledge the dire warnings of climate scientists and navigate the accelerating global market forces that are deterring institutional investors from investing in fossil fuels, of which Alberta is a major producer.

CPPIB appears to have flunked this test.

By caving to Premier Smith’s grievance politics and telling Calgary’s business community that CPPIB will continue to accept undue risk of loss in order to prop up an industry facing inevitable decline, Graham undermined the notion that CPPIB is a prudent arm’s-length pension manager that sits above politics.

He also signalled to Canadians that CPPIB is unwilling to make the difficult but necessary decisions to limit the exposure of the Canada Pension Plan (CPP) to increasingly high-risk fossil fuels.

Graham’s Calgary speech came just weeks after the International Energy Agency published its authoritative World Energy Outlook, which sees global demand for all fossil fuels peaking before 2030, under all scenarios, even if governments neglect to further strengthen and accelerate policies to reduce greenhouse gas emissions in line with climate goals.

By pledging to grow its portfolio of oil and gas assets, CPPIB is making an alarming bet on the world failing to limit global heating to safe levels, putting the CPP at risk from an accelerating energy transition and our retirement security at risk from catastrophic climate change. It’s almost as if CPPIB doesn’t understand that every 10th of a degree of temperature increase makes a livable planet less and less achievable.

Graham said in his Calgary speech that CPPIB holds $6 billion in assets in Alberta’s oil and gas industry, whose emissions continue to increase, putting Canada’s climate targets out of reach. He shared the stage with Teine Energy and Wolf Midstream, two Alberta-based fossil fuel companies owned by CPPIB – neither of which have committed to net-zero emissions.

CPPIB’s reluctance to acknowledge the need to phase out fossil fuels might also be influenced by the oil and gas interests prominently represented on its board. Four of the fund’s 12 directors are concurrently directors or executives of fossil fuel companies, including Kiwetinohk Energy, a Calgary-based natural gas producer and gas plant operator; Capital Power, an Edmonton-headquartered gas plant operator; Domo Gasoline, a western Canadian gasoline retailer; and Wajax Corp, an oil sands equipment and services provider. In case CPPIB needs a direct line to the oil and gas lobby, the president and CEO of the Canadian Association of Petroleum Producers is a former CPPIB executive based in Calgary.

Graham claimed that “some of the most responsibly produced conventional energy in the world is in Western Canada.” This is a fictitious line we expect to hear from oil lobbyists but shouldn’t hear from a prudent pension manager.

Greenhouse gas emissions from a barrel of Canadian oil are among the highest in the world compared with other producers. Studies estimate that methane emissions from Canada’s oil and gas sector are at least 1.5 times higher than reported, and in some cases 15 times higher. Recent research from the University of Calgary concludes that Alberta’s inactive and orphaned oil-and-gas-well problem is “an immense environmental and financial crisis” that could cost between $60 and $120 billion to address. Meanwhile, oil sands companies continue to leak toxic tailings into Alberta waterways with near impunity, contaminating ecosystems and exposing downstream Indigenous communities to harmful chemicals. The Alberta Energy Regulator is widely seen to be captured by the oil and gas industry it’s supposed to regulate.

Graham’s speech also included dubious statements about divestment and the pace of transition away from fossil fuels, claiming that the “global investment community has also changed its tune when it comes to fossil fuel divestment.” Similarly, CPPIB’s chief sustainability officer wrote in CPPIB’s 2023 Report on Sustainable Investing that “consensus has consolidated around the belief that the financial system should be empowered to finance the transition to a low-carbon future rather than mobilized to pursue a divestment agenda.”

This “consensus” is imaginary. The financial system must be aligned with a zero-carbon future, and many investors have stopped pretending that it’s possible to finance the decarbonization of fossil fuels. The only credible pathway to zero emissions for oil, gas and coal companies is to phase out production.

Already, investors with nearly US$41 trillion in assets have at least a partial investment exclusion on fossil fuels. In Canada, the Caisse de dépôt et placement du Québec (CDPQ) divested its oil and coal assets in 2022, while Ontario’s University Pension Plan,  OMERS (the Ontario Municipal Employees Retirement System), HOOPP (Healthcare of Ontario Pension Plan), and IMCO (Investment Management Corporation of Ontario) all announced partial exclusions on investments in fossil fuels in the last year. Globally, some of the biggest pension funds in the world exclude fossil fuels from their portfolios, including Europe’s largest pension fund, ABP, the U.K.’s largest workplace pension scheme, Nest, and the U.S.’s fourth-largest pension fund, the New York State Common Retirement Fund.

There are clear financial reasons that global capital continues to flee the oil and gas sector, particularly Alberta’s oil sands. The industry is facing terminal decline, with billions of dollars of oil and gas assets set to become stranded if Canada and the world are to achieve their climate targets. CPPIB is behaving irresponsibly by pretending that Alberta can extract, refine and burn these assets, when an honest conversation is needed about supporting Albertan communities and workers through the transition away from fossil fuels.

CPPIB CEO John Graham’s response to Premier Smith’s Alberta Pension Plan gambit is entirely predictable. But in telling the world that CPPIB will continue to prop up high-risk oil and gas companies whose business model is fundamentally incompatible with a livable future, Graham must ask himself: is CPPIB behaving like a prudent arm’s-length pension manager investing in the best interests of 21 million Canadians or a cheerleader for an oil and gas industry facing inevitable, structural decline?

It’s impossible for CPPIB to be both.

Patrick DeRochie is the senior manager for Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the fossil fuel investments and climate policies of Canadian pension funds and that mobilizes beneficiaries to engage their pension managers on the climate crisis.

The post Canada’s pension plan shouldn’t be a cheerleader for Alberta’s oil and gas industry appeared first on Corporate Knights.

Come the first day of 2023, Canada’s federal government will essentially end financing for oil and gas internationally. 

The policy is the fulfillment of a key 2021 election promise by the governing Liberals to align international public financial support for the clean energy transition. Yet while Canadians’ tax dollars will no longer go toward financing fossil fuels abroad, their hard-earned retirement savings still do. Canada’s largest pension funds, including the Canada Pension Plan Investment Board (CPPIB) and Public Sector Pension Investment Board (PSPIB), continue to finance oil and gas expansion abroad. 

This inconsistency must be addressed. It underscores the need for greater climate-related regulation of the financial sector, including public pension plans. 

In early December, Canada announced it would implement the Glasgow Statement, a multilateral commitment signed at last year’s COP26 to end international public financing for fossil fuels by the end of 2022 and fully prioritize the clean energy transition. Although the new Canadian policy contains some modest exceptions for fossil gas (aka natural gas), blue hydrogen and projects that use carbon capture, utilization and storage, it applies across all federal departments, agencies and Crown corporations. This makes it unlikely that Canada would finance any new fossil fuel project internationally in future. Minister of Environment and Climate Change Steven Guilbeault also suggested that domestic fossil fuel subsidies would be eliminated in the first half of 2023. 

Canada’s new policy will predominantly affect Export Development Canada (EDC), a Crown corporation with a long history of funnelling billions in support to the oil and gas industry. Between 2016 and 2019, EDC provided an average of $10.6 billion per year in public financing for oil and gas, and another $13.6 billion in 2020. But while it cuts off the flow of international financing from EDC, Canada’s new commitment does not apply to other Crown financial institutions like CPPIB and PSPIB. 

CPPIB is the investment manager for the $523-billion Canada Pension Plan, the national retirement fund for more than 21 million Canadians outside of Quebec. PSPIB is the $230-billion investment manager for more than 900,000 federal public servants. Both pension managers are significantly invested in fossil fuels in Canada and abroad and have no exclusion policy for oil, gas and coal. 

The International Energy Agency has been unambiguous that limiting global heating to 1.5℃ requires no new investment in fossil fuels. The UN High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities was unequivocal at COP27 in Egypt, where it said that credible climate plans from financial institutions mean “no room for new investment in fossil fuel supply and a need to decommission existing assets.” And now Canada’s federal government is making good on its promise to end public financing of fossil fuels abroad. 

But that expert advice is not being followed by Canada’s federal pension managers. So far, their climate strategies fall short of credible climate plans that align their portfolios with a safe climate future.  

PSPIB released its inaugural climate strategy in April 2022, recognizing the urgency of limiting global heating to 1.5℃ and committing to support the global transition to net-zero. But just a month later, a private utility company co-owned by PSPIB spent more than $1 billion to buy 5,835 kilometres of fossil gas pipelines and a gas storage facility in Alaska.  

CPPIB is also a major investor in fossil fuels, both in Canada and internationally. Although Canada’s national pension manager is making huge investments in renewable energy, has committed to net-zero emissions by 2050, and calls “the need to combat planetary warming urgent and clear,” CPPIB regularly and publicly states its intention to continue investing in fossil fuels. And the actions of the numerous private oil and gas companies owned by CPPIB demonstrate that this Crown corporation plans to continue financing fossil fuel expansion. 

For example, CPPIB-owned Civitas Resources, which calls itself “Colorado’s largest pure play oil and natural gas producer” plans to drill hundreds of new wells in 2023. In August, Nephin Energy – Ireland’s largest gas producer, which is 43.5% owned by CPPIB – announced it is studying options to prolong the life of the Corrib gas field off the coast of Ireland and build two new gas plants. In 2022, CPPIB also invested in Kimmeridge Fund VI, a U.S.-based alternative asset manager whose investments include oil and gas producers in Colorado and Wyoming and an oil and gas royalty interests company in the Permian Basin in the southwestern U.S. 

These investments in fossil fuel expansion by CPPIB clearly contradict Canada’s new policy.  

CPPIB and PSPIB are independent from government – as they should be. But that does not let them off the hook for failing to align Canadian pension savings with climate safety. They have a fiduciary duty to assess and manage climate-related financial risks and invest in the best long-term interests of Canadians, including those who won’t retire until well into the second half of the 21st century. There can be no retirement security for pension plan members if the climate crisis spirals out of control. 

CPPIB and PSPIB are now outliers, ignoring the warnings of scientists, economists, policy-makers – and now the actions of the federal government – to end their financing of the primary causes of the climate crisis. It’s time for them to stop using Canadians’ pension capital to finance fossil fuel expansion and to start developing credible plans to phase out their fossil fuel assets.  

The failure of CPPIB, PSPIB and other Canadian financial institutions to do what’s necessary to prevent catastrophic climate change underscores the need for regulation to align the sector with Canada’s climate obligations. The federal government took an important step in ending international public financing of fossil fuels, an essential part of any credible climate plan. It’s time that all financial institutions, including our federal pension plans, do the same.  

The post A new year’s resolution for federal pension funds: Stop financing fossil fuels appeared first on Corporate Knights.

Last month, the Canada Pension Plan Investment Board (CPPIB) released its 2022 Report on Sustainable Investing, highlighting its commitment to be net-zero by 2050 and its engagement strategy to pressure companies to manage climate risks. Our $523-billion national pension manager is making big promises to decarbonize its portfolio by making large investments in climate solutions, pledging to report its absolute emissions, and using its influence and capital to help transition high-carbon industries. 

It’s potentially a smart approach, but it stands in stark contrast to public commitments CPPIB officials have made to continue investing in fossil fuels.  

At the end of September, Richard Manley, the head of sustainable investing at CPPIB, told The Globe and Mail that we could see “Big Oil become Big Energy, but also no-carbon oil over time.”  

This comment should be a red flag for Canadians concerned about the security of their pensions and the stability of our climate.  

It’s part of a broader argument that financial institutions should continue to flow capital into the oil and gas industry indefinitely, in spite of pension funds’ fiduciary duty to invest in members’ best long-term interest and climate commitments to reach net-zero emissions by 2050. For example, CPPIB said earlier this month that it will “support conventional energy companies that are committed to reducing their emissions and are well positioned for the energy evolution.”  

Many emissions-intensive industries – like cement, agriculture, buildings, transport and utilities – have credible, profitable pathways through the energy transition, but the oil and gas sector does not. 

Manley also said that “we’re already seeing Big Oil become Big Energy,” but this belief is mistaken. Five of the global supermajors are spending around US$750 million annually on greenwashing while allocating just 12% of capital expenditures to “low-carbon” activities, according to think tank InfluenceMap. Canada’s six largest oil and gas producers are making record profits but failing to invest significantly in emissions reductions while lobbying to undermine ambitious government climate policies.   

The notion of “no-carbon oil” is absurd – a marketing attempt to obscure reality. Crude oil is composed of long chains of carbon strung together. It’s consumed primarily via combustion to extract energy, releasing that carbon into the atmosphere in the process. Global production and the use of 100 million barrels of oil per day is a leading cause of the climate crisis. 

The underlying argument that institutional investors like CPPIB should continue to flow capital into oil and gas companies to finance carbon-cutting innovations sounds reasonable – until you consider reality. The technologies available to reduce oil and gas emissions have to date proven ineffective, unreliable, expensive and unavailable at the required scale.  

The leading proposed solution, carbon capture utilization and storage (CCUS), has not measured up to hype, with oil companies unwilling to invest profits into this expensive technology that increases production costs. CCUS may eventually prove important for hard-to-abate sectors like cement or fertilizer, but better, cheaper, zero-carbon substitutes for oil and gas already exist. 

Even if CCUS somehow became inexpensive, scalable and effective, it cannot address oil and gas life-cycle emissions. There’s no taking the carbon out of the barrel. The overwhelming majority of emissions are the result of using oil and gas products as designed – for combustion. Depending on the blend, between 70 and 80% of the carbon pollution from a barrel of crude comes from the tailpipe.  

Disruptive technologies and new policies are already destroying oil demand, with an estimated six million electric vehicles expected to be sold in China alone this year. There is little reason to believe that a market for non-combustion uses of crude might arrive at scale in time to stop the industry’s decline. Optimistic marketing around “bitumen beyond combustion” that could drive future demand growth for oil-sands production lacks credibility, considering that only 7% of crude oil consumed in the United States is for non-combustion use. 

CPPIB reported this summer that it has $21.72 billion invested in fossil fuel producers. It is deeply entangled with the fossil fuel industry through its board and staff. A long-time member of CPPIB’s global leadership team is now CEO of the Canadian Association of Petroleum Producers. 

As the Intergovernmental Panel on Climate Change and the International Energy Agency have made clear, limiting global heating to 1.5℃ requires an immediate end to fossil fuel expansion and a rapid phase-out of production. The Glasgow Financial Alliance for Net Zero and the Investor Leadership Network already provide investor guidance for the responsible phase-out of high-emitting assets. 

CPPIB’s mandate, to invest the CPP funds to achieve a maximum rate of return without undue risk of loss, does not involve assuming extraordinary climate-related financial risks to prop up an industry facing structural decline. Fossil fuel companies are desperate to preserve their business model and prolong the use of oil and gas, but our pension capital cannot be their lifeboat. 

The post Memo to CPPIB: There’s no such thing as ‘no-carbon oil’ appeared first on Corporate Knights.

Patrick DeRochie is the senior manager for Shift: Action for Pension Wealth and Planet Health. 

Canada’s pension beneficiaries are increasingly worried about how their pensions are being invested in the face of a rapidly worsening climate crisis.

A growing number of Canada’s largest public pension administrators and investment managers have made net-zero-emissions commitments. But most funds continue to keep their beneficiaries in the dark about how they plan to achieve these pledges and manage climate-related financial risks.

Over the last two years, nearly 2,000 beneficiaries of Canada’s 10 largest pension funds, which collectively manage more than $2 trillion in retirement benefits, have written to their pension administrators and investment managers asking for transparency on how their retirement savings are being invested.

In September 2021, a group of beneficiaries sent letters with detailed questions to these funds warning them of their fiduciary duty to assess, disclose and manage climate-related financial risks, backed by research from Shift Action for Pension Wealth and Planet Health and a legal backgrounder from Ecojustice.

Signatories, who included healthcare professionals, teachers, scientists and others, asked for information about the funds’ exposure to high-risk fossil fuel companies, the funds’ vulnerability to varying climate scenarios, and how the funds were addressing climate-related risks and investing in climate solutions.

Beneficiaries asked for a response from their pension administrators by the end of 2021. Nine of the 10 pension funds responded to beneficiaries; the Alberta Investment Management Corporation failed to provide a response, despite confirming receipt of the letter and acknowledging that its contents were being discussed by its board, executive and client pension plans.

The responses make clear that these pension funds know that the climate crisis is a “significant,” “systemic” and “urgent” issue that presents financial risks and opportunities and could impact the retirement security of their members.

Most of these funds use a variety of internal tools to assess and manage climate risk. They are ramping up investments in climate solutions, hiring climate experts and risk analysts, and reporting some of their exposure to climate risks under the Task Force on Climate-Related Financial Disclosures framework, a group set up to develop international standards on climate risk disclosure. They’re also measuring the carbon intensity of their portfolios and using scenario analysis to stress test them against different global heating trajectories. 

Most funds continue to keep their beneficiaries in the dark about how they plan to manage climate-related financial risks.

However, most funds are also failing to disclose climate plans with the urgency required to address the systemic risks created by climate change.

The responses lacked consistency on climate risk disclosure, pathways to achieve net-zero emissions, and robust near-term action for managing climate risks and meeting long-term targets. This could potentially mislead beneficiaries about the exposure of their pensions to climate risks and the adequacy of efforts to address them. As put by Catherine McKenna, a former federal environment and climate change minister and recently announced chair of the United Nations High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities, net-zero pledges will have meaning only if “all pledges have transparent plans, robust near-term action, and are implemented in full.”

So far, only the Ontario Teachers’ Pension Plan (OTPP) and Caisse de dépôt et placement du Québec (CDPQ) have taken steps to communicate how they’re acting now to credibly meet their 2050 net-zero targets. CDPQ committed to exclude oil producers from its portfolio by the end of this year and pledged to reduce portfolio carbon intensity by 60% below 2017 levels by 2030. The OTPP demonstrated leadership by committing to reduce portfolio carbon intensity by two-thirds below 2019 levels by 2030 and reporting a 13% reduction in absolute emissions between 2019 and 2021. 

On April 21, the Public Sector Pension Investment Board (PSP) released its first climate strategy. PSP included a short-term carbon footprint target half as stringent as the OTPP’s and said it would reduce its holdings in “carbon-intensive assets that lack transition plans” by 50% in five years – essentially guaranteeing that it would still have at least $3.9 billion invested in high-risk climate polluters in 2026. While other funds, such as the Healthcare of Ontario Pension Plan (HOOPP), the Investment Management Corporation of Ontario (IMCO) and the OPSEU Pension Trust are still developing or updating their climate plans, they haven’t yet announced stringent interim targets or commitments to limit exposure to sectors that are highly exposed to climate-related financial risk.

Overall, the responses paint a picture of a pension industry that remains unprepared for the climate crisis and uncertain about what to do with their massive investments in the primary cause of that crisis – fossil fuels. Canada’s pension industry looks increasingly out of step with at least 125 leading pension funds around the world that have listened to their members and concluded that investments linked to fossil fuels are now too risky to hold in their portfolios.

All Canadian pensions still lack a detailed inventory of their entire portfolio’s investments in fossil fuel companies or climate solutions, a critical piece to fulfilling their fiduciary duty to account for their investments to beneficiaries. All of the responding pension funds also failed to stress test their portfolios using a Paris-aligned 1.5°C scenario, a glaring oversight considering that their net-zero-emissions commitments aim to achieve this outcome. Given the dire consequences and financial risks of overshooting this target, and the unequivocal requirement for fossil fuels to be rapidly phased out to achieve it, pension funds must ensure their portfolios are resilient in a future where we achieve climate success.

All of the funds also failed to account for the emissions that come from the products of their portfolio companies (Scope 3 emissions), including the billions of dollars invested in fossil fuel companies for whom the majority of emissions comes from the burning of oil, gas and coal they produce and sell. Nor have they addressed concerns about the potential for conflicts of interest for pension directors and trustees who also sit on the boards of fossil fuel companies. Some of the funds have set time-bound climate-related expectations for portfolio companies and committed to take shareholder action like voting against board members if those expectations aren’t met, but there remain significant loopholes for companies that fail to put forward credible, profitable decarbonization plans. 

Canada’s pension industry looks increasingly out of step with at least 125 leading pension funds around the world.

In spite of these gaps, it’s clear that constructive engagement from Canadian pension beneficiaries is helping to motivate change in the right direction. In the time since letters were first sent in September, the Ontario Municipal Employees Retirement System (OMERS), IMCO, Canada Pension Plan Investment Board and HOOPP have all committed to achieving net-zero emissions in their investments by 2050, joining the OTPP and CDPQ in setting long-term net-zero targets.

However, the fund responses show a pension industry that is either unable or unwilling to provide their members with critical information that allows them to understand if their retirement savings are being managed responsibly in alignment with a safe climate future.

Either way, our findings reinforce the need for our governments to require climate risk disclosure, as is being done in the United Kingdom and New Zealand, and financial institutions’ alignment with Canada’s domestic and international climate commitments. A draft legislative framework already exists for how Canada could do this, with the introduction of the Climate-Aligned Finance Act in the Senate in March. The proposed bill recognizes the climate crisis as a superseding interest for financial institutions, mandates the integration of climate knowledge into financial decision-making, and requires boards of financial institutions to have climate expertise and end conflicts of interest with the fossil fuel industry.

As UN Secretary General António Guterres said about the latest findings of the Intergovernmental Panel on Climate Change, “it’s now or never.” Canada’s pension administrators and investment managers must get much more serious about their fiduciary duty to protect their members’ retirement savings from climate risk. If not, they will soon be forced to by increasingly stringent financial regulations or climate litigation to protect the long-term financial interests of beneficiaries.

The post Canadian pension funds are making climate promises they’re not backing up appeared first on Corporate Knights.

The problem goes beyond simply financing the construction of new gas projects and buying shares of gas producers. In many cases, the OTPP outright owns entire fossil gas companies and utilities.

The OTPP manages nearly $228 billion in pension savings on behalf of 331,000 working and retired Ontario teachers, with private equity and infrastructure comprising a growing proportion of its portfolio.

The pension fund made laudable progress in its approach to climate change in 2021, committing to being  net-zero by 2050, setting ambitious mid-term emission-reduction targets and growing its investments in profitable climate solutions to $30 billion. 

Yet the OTPP’s financial footprint in the fossil gas sector remains massive. 

In its 2020 annual report, the OTPP reported that it held just under $3 billion of “oil and gas” in its inflation-sensitive portfolio. The OTPP is unique among Canada’s pension funds in that it dedicates an entire reporting category of its infrastructure portfolio to “gas transmission and distribution,” valued at nearly $2 billion as of December 31, 2020. In July 2021, the OTPP purchased a 15.8% stake in Puget Sound Energy (PSE), a Washington-based integrated utility with 1.2 million electric and 900,000 gas customers. PSE derived two-thirds of its electricity from fossil fuels in 2019. And in August, OTPP bought a 37.5% stake in SGN, the United Kingdom’s second-largest fossil gas distribution company.

Despite a growing number of teachers, and their students, asking the OTPP to stop investing their retirement savings in risky fossil fuels, the OTPP invested at least $200 million in three different private oil and gas producers and owns two oil and gas land-titles holding companies. The pension fund also owns shares of 30 different oil and gas producers, fossil gas utilities, or pipeline companies in its public equity portfolio, as of September 30, 2021. The business models of these companies are threatened by the required rapid transition away from all fossil fuels in coming years. In some cases, these companies are expanding fossil gas infrastructure and actively working to slow that transition. 

The OTPP may be generating returns from its gas investments in the current energy landscape, but its financial stake in and entanglement with the fossil gas industry creates a complex contradiction.

Some OTPP-owned companies are also fighting policies to accelerate the transition to electrification and renewable energy, such as legislated bans on gas hook-ups in new buildings and incentives for electric heat pumps. PSE is trying to build a new gas export terminal in Washington. OTPP-owned Società Gasdotti Italia operates a 1,700-kilometre network of gas pipelines in Italy, which it is actively expanding. OTPP-owned Heritage Royalty, an oil and gas land-titles holding company that it bought from Cenovus Energy in 2015 for $3.3 billion, invites prospective producers to “find your next drilling location,” a clear invitation to expand oil and gas production. Enbridge, North America’s largest oil and gas pipeline company, on whose board the OTPP’s vice-chair of investments sits, is expanding its gas distribution infrastructure in Ontario and just opened its 760,000-barrel-per-day Line 3 crude oil pipeline.

Other senior OTPP staff and board members also have corporate connections to and financial interests in the oil and gas industry. One OTPP director sits on the board of ARC Resources, Canada’s third-largest fossil gas producer. Another board member previously served on the boards of Cenovus, one of Canada’s largest oil sands producers, and Enbridge Income Fund Holdings. And many senior OTPP investment managers serve on the boards of the private fossil fuel companies co-owned by the pension fund. 

It is unclear how these fossil fuel entanglements could be impacting climate-related decisions within the fund. The OTPP is facing difficult decisions on how to reduce its exposure to growing climate risk. As the fund develops a credible Paris-aligned investment strategy, the fiduciary duty of OTPP board members and investment managers to secure the retirement savings of a young Ontario teacher might conflict with the business models and financial interests of the fossil fuel companies on whose boards they sit. 

The OTPP may be generating returns from its gas investments in the current energy landscape, but its financial stake in and entanglement with the fossil gas industry creates a complex contradiction. Pension funds must maximize short-term returns while at the same time investing in the best long-term interests of beneficiaries, which requires mitigating climate-related financial risks and averting runaway climate change.

As Canada and countries around the world face the intensifying climate crisis and grapple with the existential need to limit global heating to 1.5℃, the production of fossil gas must rapidly decrease and the entire gas supply chain must be transformed. The International Energy Agency’s pathway for achieving net-zero by 2050 means there is “no need for investment in new fossil fuel supply,” and “beyond projects already committed as of 2021, there are no new oil and gas fields approved for development.” 

Last year, the OTPP set a target for two-thirds of its portfolio carbon emissions to be covered by credible, science-based company net-zero plans and targets by 2025, and 90% by 2030. As well, some of the fossil gas companies owned by the OTPP portfolio have signaled a commitment to transition away from fossil fuels. But while OTPP has made significant progress on climate to date, through the actions of the fossil gas companies that it finances and owns, the OTPP is still using teachers’ retirement savings to actively work against their best long-term interests.

Even if gas companies and expansion projects make money in the short-term, all fossil fuel expansion investments contribute to the risk of triggering a climate-fuelled financial collapse in the future. For a young Ontario teacher hoping to retire in 2050 into a world with a stable climate, banking their retirement on companies that lobby against stringent climate policies, expand fossil gas infrastructure and lock in carbon pollution don’t make any sense – financially or ethically.

Patrick DeRochie is the senior manager for Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the fossil-fuel and climate-related investments of Canadian pension funds and mobilizes beneficiaries to engage their fund managers on the climate crisis.

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As of December 1, at least 177 global pension funds had investment policies that partially or completely excluded fossil fuels. In October, Europe’s biggest pension fund, the Netherlands’ ABP, announced that it would divest from fossil fuel producers. Three New York City pension funds committed to net-zero by 2040 and pledged to invest US$37 billion in climate solutions by 2035. And in September, Sweden’s AP1, which already excludes fossil fuels, launched a fund to facilitate the whole-economy net-zero transition and reduce absolute emissions. 

This year also saw Canada’s big public pension funds say that they’re getting serious about the climate emergency, pushed along by a growing number of concerned beneficiaries and sponsors demanding action. But if they want to emerge as global leaders, these pension giants need to rapidly deploy credible climate-safe investment strategies and stop gambling Canadians’ retirement savings on fossil fuel expansion.

Canada’s 10 largest pension funds alone have more than $2 trillion in assets under management. How these funds invest our pensions is critical to achieving the Paris Agreement goal of limiting average global heating to 1.5°C above pre-industrial levels. Avoiding climate catastrophe is critical to pension funds’ fiduciary duty to maximize returns and invest in the best long-term interests of millions of Canadian beneficiaries.

Canadian pension funds are using sophisticated tools to measure their portfolio carbon footprints, testing their portfolios against different global heating scenarios, setting targets to reduce portfolio emissions intensity, and sharpening their shareholder engagement strategies to prioritize climate action. They’re also allocating billions of dollars toward climate solutions, such as renewable energy and clean technology. For example, the Ontario Teachers’ Pension Plan (OTPP) now has 14% of its portfolio, or more than $30 billion, invested in what it considers climate-friendly assets.

In recent years, some of Canada’s largest pension funds have also been quietly offloading their fossil fuel stocks. CPP and Caisse de dépôt et placement du Québec (CDPQ) have reduced the value of their fossil fuel equity holdings by more than 90% over the last 10 years. In November, OMERS (Ontario Municipal Employees’ Retirement System) and the Investment Management Corporation of Ontario established net-zero-by-2050 goals, joining OTPP and CDPQ in the net-zero club.

How these funds invest our pensions is critical to achieving the Paris Agreement goal of limiting average global heating to 1.5°C above pre-industrial levels.

These are all laudable signs of progress, but no Canadian pension fund has gone nearly far enough to address the unprecedented financial risks of climate change and align its portfolio with a safe climate future. The recent Canadian Pensions Dashboard for Responsible Investing report found very few examples of global best practices when it comes to climate risk and responsible investing.

No Canadian pension fund has published a comprehensive investment strategy that credibly aligns its portfolio with climate safety. Apart from the CDPQ’s commitment to divest from oil producers by the end of 2022, none have formalized an exclusionary screen on fossil fuels. CPP continues to explicitly rule out divestment, even though its public equity portfolio’s cumulative return would be 17.08% higher had it divested 10 years ago. It’s encouraging to see CPP’s focus on critical decarbonization pathways for hard-to-abate industries, but it doesn’t seem to grasp that there is no credible or profitable pathway to zero emissions for companies whose core business is exploring for, extracting, refining or transporting fossil fuels. And it doesn’t help that CPP’s board of directors has close ties to the oil and gas industry. 

Even as the International Energy Agency warns that fossil fuel expansion must end immediately to salvage a 1.5°C world, Canadian pension funds invest billions of our retirement dollars in companies and assets that expand oil, gas and coal infrastructure. In many cases, our pension funds own the pipelines, oil and gas companies, and offshore gas fields themselves.

The oil and gas industry’s net-zero commitments lack credibility. Yet Canadian pension funds cling to a misguided belief that “having a seat at the table” means they can “engage” their way to changing a fossil fuel business model that is fundamentally incompatible with climate safety.

ABP, on the other hand, said it was divesting because it saw “insufficient opportunity for [it] as a shareholder to push for the necessary significant acceleration of the energy transition at these companies,” opting to focus its engagement on the utility, auto and aviation sectors instead. In divesting from oil sands companies this year, the New York State Common Retirement Fund (NYSCRF), the third-largest pension fund in the United States, concluded that those companies “do not have viable plans to adapt to the low-carbon future” and “pose significant risks for investors.” 

If Canada’s pension funds are serious about protecting our retirement savings and investing in a safe climate future, there’s no more time for greenwashing and incrementalism. They must catch up with their global peers and listen to the growing number of beneficiaries demanding change: shift capital out of high-risk fossil fuel assets and into profitable climate solutions, crack down on company greenwashing, and dramatically scale up investments in climate solutions.

Patrick DeRochie is the senior manager for Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the fossil-fuel and climate-related investments of Canadian pension funds and mobilizes beneficiaries to engage their fund managers on the climate crisis.

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But despite their recent signs of progress on climate risk analysis and reducing the carbon footprint of their portfolios, Canada’s pension funds continue to pursue investing strategies that keep us on the pathway to catastrophic and irreversible climate change and put the savings of millions of Canadians at risk.

First, credit where credit is due. There is growing evidence that the managers of our retirement savings are waking up to the unprecedented risks of climate change.

Canada’s pension giants have acknowledged climate change as a material risk to their portfolios. They have hired climate experts, taken early steps to understand the risks of the climate crisis and are measuring the baseline carbon footprint and carbon intensity of their portfolios. They are also starting to recognize the financial opportunity of investing in climate solutions, ramping up investments in renewable energy, clean technology and sustainable agriculture. And last year, they joined together to call for voluntary climate-risk disclosure from companies.

Some of Canada’s largest pensions have even begun setting targets. In January, the $221-billion Ontario Teachers’ Pension Plan (OTPP) committed to net-zero emissions by 2050. The Ontario Municipal Employees Retirement System (OMERS) set a goal of reducing the carbon intensity of its $105-billion portfolio by 20% below 2019 levels by 2025. The British Columbia Investment Management Corporation (BCI) pledged to invest $5 billion in “sustainability bonds” by 2025 and reduce the carbon exposure of its public equities portfolio by 30% below 2019 levels. Most notable is Canada’s current pension fund climate leader, the Caisse de dépôt et placement du Québec (CDPQ), which became the first Canadian pension fund to set a net-zero target in 2019, increased its low-carbon investments by 80% between 2017 and 2020, reduced its portfolio carbon intensity by 38% five years ahead of schedule, linked employee compensation to climate targets, and has begun unwinding its holdings in high-risk climate polluters like Exxon.

These are all encouraging developments, but none of Canada’s pension funds have gone far enough to protect their portfolios from the financial risks of climate change while working to ensure that their members have a livable planet to retire on.

Without clear, transparent and ambitious targets and timelines for decarbonizing their holdings in line with a 1.5℃ emissions pathway, including detailed plans to align their portfolios with the required rapid transition away from fossil fuels, efforts to protect member retirement savings in a carbon-constrained future fall short of their legal fiduciary duty and climate safety.

A plan with short- and long-term goals is required. OMERS’s and BCI’s 2025 emissions intensity targets are of little value without a long-term framework to decarbonize their entire portfolios in less than three decades. The OTPP announced its net-zero commitment six months ago but has been completely silent on short-term details since. Most other Canadian funds have thus far refused to establish targets of any kind.

The lack of clear climate plans is particularly troubling considering Canadian pension funds’ exposure to high-risk companies and infrastructure, especially those pursuing fossil fuel expansion that is incompatible with climate safety.

In 2017, the Canada Pension Plan purchased an offshore gas company in Ireland that faces an offshore-gas permitting ban. In 2019, the Alberta Investment Management Corporation bought a 65% stake in TC Energy’s Coastal GasLink pipeline, in the face of unwavering Indigenous opposition and growing market uncertainty. Last year, OPTrust announced that it would finance the construction of a new fossil gas plant in Alberta with questionable prospects in the face of a rising carbon price and clean energy competition. Just months before its net-zero commitment in January, the OTPP joined a consortium to buy a US$10.1-billion stake in the Abu Dhabi National Oil Company’s gas pipeline network. OTPP also bought a joint 69.4% stake in Italy’s second-largest gas pipeline network, just as the EU considers plans to phase out fossil fuels. And just this month, the CDPQ became the majority owner of Énergir, Quebec’s main fossil gas distributor. In recent years, five of Canada’s six largest pension funds increased their holdings in oil sands companies, all of whom have explicitly committed to increasing production of long-lived, high-cost, high-carbon oil.

These are not the actions of climate leaders. With the International Energy Agency stating that a 1.5℃ emissions pathway requires no new fossil fuel expansion, these are all examples of risky investments in climate failure. By investing in fossil fuel expansion while preemptively taking important risk-mitigation tools like divestment off the table, Canadian pension funds are still headed in the wrong direction.

Already, investors with more than US$15 trillion in assets, including more than 100 major global financial institutions, have pledged to partially or fully divest from fossil fuels. The U.S.’s third-largest pension fund is ending investments in fossil fuels by 2025. In the U.K., pension giant NEST committed to phase out investments in thermal coal, oil sands and Arctic drilling; halve its portfolio’s carbon emissions by 2030; and decarbonize by 2050. Here in Canada, the University of Waterloo is cutting the carbon footprint of its endowment and pension portfolio in half by 2030 and targeting carbon-neutrality by 2040.

To be taken seriously on climate, Canadian pension funds must end new investments in fossil fuel expansion, phase out current oil, gas, coal and pipeline investments by 2025 and establish a plan to decarbonize their portfolios by 2040. Instead of fossil fuel investments, Canada’s pensions should ramp up their capital allocation to climate solutions and develop a robust engagement policy that requires polluters to align their business models with the Paris Agreement.

So far, Canada’s largest pension funds have failed to commit to do what is necessary to protect our retirement savings. To do so, they’ll need to do better at helping the world avoid catastrophic global heating.

Patrick DeRochie is senior manager at Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the investments and climate policies of Canadian pension funds and mobilizes beneficiaries to engage their fund managers on the climate crisis.

Related read: Canadian pensions are retiring fossil fuel investments

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